If losses from F&O, intra-day trades are below Rs 20,000-30,000, it's best not to claim them and opt for ITR-2.
If you are a salaried person who trades in stocks, filing income tax returns can be a tricky job.
Depending on the instrument, frequency of trade and volume, you can either fill the ITR-2 form meant for the salaried with no business income or ITR-4 which is for income from business and profession.
"Deciding which form to fill has always been a controversial. There have been multiple court rulings on this one. Yet, it still can be a grey area," says Kuldip Kumar, partner-tax and regulatory services, PwC India.
Take, the case of Ajitesh Pathak, a bank employee who also trades in stocks. He has no fixed period of trading - makes investment as and when he finds a stock at an attractive price.
Experts say if he has taken delivery of all the stocks, he can fill ITR-2. In this form, he can show the gains and losses he made, and in case of the latter, they can be carried forward to the next seven years to set them off against future capital gains.
If the portfolio is purely delivery-based, the taxpayer has better chances of convincing the assessing officer it was for investment purpose and it's not assessee's business.
However, if Pathak went long or short on stocks, wherein he didn't take the delivery, this would be classified as income from speculative business, and he will need to fill up ITR-4.
This form will also allow him to claim expenses related to this business. For example, if he has a car and a computer that he has used for this, he can claim depreciation on them.
All this sounds good as long as he has not made losses. If he did and want to claim them, then he will need to maintain books of accounts and get them audited by a chartered accountant.
"Those who trade in futures and options (F&O), mandatorily need to file ITR-4. Income tax laws define this as income/loss from business. If the income is more than Rs 1 crore, he will also need to maintain book of accounts and get them audited," says Amol Mishra, head of tax at myITreturn.com.
It gets complicated if the salaried is doing both delivery and speculative trading. In such a case, the person will need to bifurcate the portfolio into 'investments' and 'stock-in-trade' (non-delivery based).
The rules to carry forward the losses will, however, vary. In case of intraday, they will be treated as income from speculative trade.
The losses can be carried forward only for four years and cannot be set off against non-speculative gains. Trades in derivatives are considered to be non-speculative.
Tax experts say if a salaried person does not trade regularly in F&O or intraday, and has losses below Rs 30,000, it's best not to claim losses and fill ITR-2.
The compliance cost can be high since the chartered accountant who audits the books will change at least Rs 20,000-30,000, wiping out any gains you have made. In case of small gains, the person can declare them under income from other sources.
"At the end of the day, if a person's tax rate is 30 per cent, he will end up paying the same amount of tax, no matter which form he fills," says a tax expert.